Singapore Property - Buying Opportunity

Housing recovery intact; remain POSITIVE

With the demand-supply outlook still supportive of a housing recovery, we expect the recent home-price rally to continue and see buying opportunities during the current share-price weakness.

Speculative buying is near its historical low while existing measures continues to ensure financial prudence amongst property buyers. As such, we see no need for further policy tightening.

We attribute 5M18’s soft developer sales to a lack of new launches, not a sign of market weakness. We believe housing demand remains strong, going by healthy overall volumes, including secondary market transactions.

Remain POSITIVE on the sector with UOL as our top pick among the large caps and GuocoLand among the mid-caps. Risks include a sharp rise in interest rates and property price falls.

Sector benchmark CDL trades at 21% discount to RNAV vs parity in the early stages of a property upcycle.

Stocks & physical prices diverge

Despite a 7% rebound in home prices YTD, developer stocks have shed 4%. With the demand-supply outlook still supportive of a housing recovery, we see this divergence as an opportunity to raise sector exposure.

We forecast annual net supply of just 5,300 units for 2018-20E vs the market’s long-term average absorption of 11,400 units. Furthermore, replacement demand from the 6,000+ households displaced by en-bloc deals announced since 2017 will soak up a large part of this supply. Given this, we expect lower vacancy over the next few years.

Further tightening likely not necessary

We see no need for further policy tightening. While the housing market is recovering, we believe it is not overheating.

Sub-sales are near their historical low, at just 1.5% of transactions. Intact cooling measures implemented after GFC should continue to keep prices and exuberance in check.

Lastly, we believe gradual increases in interest rates are natural dampeners for the market.

Soft sales not a sign of weakness

URA reported that developers sold 1,121 private homes in May. This brought new-home sales to 3,431 units in 5M18, down 38% from 5M17. As we attribute the y-o-y drop to limited launches in the early part of 2018, we do not read it as a sign of market weakness.

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